Canadian Currency Drops Below Parity with U.S. Dollar First Time in 4 Days

Canada’s dollar slackened through parity with its U.S. counterpart for the first time in four days as risk appetite ebbed and stocks dropped on bets global economic growth may stall.

The currency weakened for a second day on speculation technical indicators are pointing to a stronger U.S. dollar versus its major peers, according to Camilla Sutton at Scotia Capital in Toronto. Global and U.S. stocks fell.

“Risk-seeking sentiment has been pared back in recent days, which is likely holding back some of the higher-beta currencies like the Canadian dollar and Australian dollar,” said Brian Kim, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut. Such currencies tend to rise and fall with equities and commodities.

The loonie, as the Canadian currency is known for the image of the waterfowl on the C$1 coin, depreciated 0.3 percent to 99.98 cents per U.S. dollar at 5 p.m. in Toronto. It touched C$1.0020, the weakest level since Feb. 16, the last time the loonie fell below parity. One Canadian dollar buys $1.0002.

The Australian and Canadian currencies both fell against the majority of their most-traded peers tracked by Bloomberg.

“The Canadian dollar failed to break 99 cents, so we did some profit-taking this morning on long positions,” said Blake Jespersen, director of foreign exchange at Bank of Montreal in Toronto, referring to bets the Canadian dollar would rise against the greenback. “The view seems to be that fundamentally the Canadian dollar should not be much stronger. We still think the Canadian dollar remains extremely range-bound between 99 cents and C$1.0050.”

Kim at RBS predicted Canada’s dollar will appreciate to 98 cents versus the U.S. currency by the end of this quarter.

Bonds Gain

Government bonds rose. Yields on five-year Canadian securities dropped three basis points, or 0.03 percentage point, to 1.48 percent, after climbing yesterday to 1.51 percent, the highest level since Oct. 31. The price of the 1.5 percent notes due in March 2017 gained 14 cents to C$100.12.

The five-year debt yielded 62 basis points more than equivalent-maturity U.S. debt, the most since September, from 33 on Dec. 27.

Canada auctioned C$400 million ($400 million) of inflation- linked securities due in 2044, according to a statement on the central bank’s website. Known as real-return bonds, they fetched a median yield of 0.554 percent, compared with 0.620 percent at the previous auction in November. The bid-to-cover ratio, or the amount bid divided by the amount offered, was 2.58 times, Bank of Canada data showed.

Market Shift

The loonie will depreciate to C$1.01 against the greenback by the end of March before rebounding to parity by year-end, according to the median of 38 forecasts compiled by Bloomberg.

“We have a whole bunch of technical indicators telling us there’s a shift in the market,” said Scotia Capital’s Sutton, head of currency strategy at the Bank of Nova Scotia unit in Toronto. She cited shorter-term moving averages crossing over longer-term moving averages in the Australian dollar, British pound and euro versus the U.S. dollar, bullish signals for the greenback. “It gives us more indications that there is a turn here in markets for a stronger U.S. dollar,” she said.

Sutton forecast a depreciation in the Canadian currency to about C$1.03 in the next “several weeks.”

The MSCI World Index (MXWO) of stocks in developed nations was down 0.4 percent after declining yesterday by 0.1 percent, while the Standard & Poor’s 500 Index declined 0.3 percent.

The Canadian dollar rose 2 percent over the past three months against nine developed-nation counterparts monitored by Bloomberg Correlation Weighted Currency Indexes. The U.S. dollar weakened 2.2 percent, and the euro dropped 4.2 percent.

To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net